High GST rate may brew more unorganised deals in used car sector: Experts

Dealers of used cars are a miffed lot these days. The implementation of goods and services tax (GST) has led to a sharp decline in their margins.Satyanarayan Iyer | TNN | Updated: July 24, 2017, 08:52 IST

It is estimated that about 10-15% of all used cars sold in the country happen through organised network like Maruti True Value, Mahindra First ChoicePUNE: Dealers of used cars are a miffed lot these days. The implementation of goods and services tax (GST) has led to a sharp decline in their margins.

The government has fixed GST at 29% (including cess) on non-premium used cars and 43% on premium used cars. This is sharply up against the 0.5-14% value added tax rate (VAT) that was prevalent across different states prior to July 1, 2017 (GST rollout).

The higher tax incidence under GST is already having a negative impact on the sellers’ psyche, dealers said. “Customers are confused. The sellers are not ready to sell to us as they see the tax is quite high. I have already lost 4-5 deals in the last 20 days,” Mallikarjun Niture, director of premium used cars, Deccan Wheels, said.

To be sure, the tax applies only on sales through the organised dealer network. There is no GST on used cars sales from individuals to individuals.

It is estimated that about 10-15% of all used cars sold in the country happen through organised network like Maruti True Value, Mahindra First Choice, among others.

This, industry players believe, will not just push used car sales outside the organised network, but also impact government revenue.

“This will create a parallel market. Also 30% of the total used car sales happens for exchange against a new car purchase. A higher tax rate will also hamper the new car sales,” John Paul, president, Federation of Automobile Dealers Association, said.

Also, organised dealers refurbish the used cars sometimes themselves or at times from other service providers. Used cars sold through organised chain come with warranty and bank finance is also provided. All of this is likely to be hit if the tax incidence stays high.

“We have written to the government and sought an appointment. It is more than what meets the eye and we want to explain this to the government,” Paul said, adding that they are yet to hear from the government on the issue.